Why pay for idle power plants?

The issue of massive capacity charges being paid yearly has become a cause for serious concern. While there are a lot of misconceptions about the practice, it is not limited to Bangladesh but has turned out to be a global practice. The problems associated with these charges reaching critical levels as far as the amount doled out is concerned now calls for a critical revision. The problem could have been mitigated had there not been a mismatch between demand for power and supply of primary fuel supply. Unfortunately, as things panned out over the last decade, policymakers went on adding an excessive number of power plants without doing a proper demand forecast for power. Financial resources were poured into these plants without the corresponding investments in exploration of national fuel sources.

Hence, today Bangladesh finds itself burdened with massive capacity charge and rent, all of which is putting immense strain on the country's capacity to pay for these charges. The power sector is in constant need for more infusion of funds to pay off dues owed to various suppliers of energy, be it oil, LNG, or the independent power plants (IPPs). The fact that a quarter of the annual subsidy is being pumped into the power sector is still not enough for Bangladesh Power Development Board (BPDB) to clear what is owed to IPPs.

The massive power production expansion has come at a cost to consumers. Repeated tariff hike at retail level (thrice this fiscal year alone) points to the general tendency that additional cost of producing power is simply being offloaded on to consumers. The failure at policymaking level is the burden for power consumers. Things were laid bare in parliament recently when "Nasrul Hamid MP, State Minister for Power, Energy and Mineral Resources, responding to a question in parliament stated that the government paid about TK 105,000 crore as a capacity charge and rent to power plant operators over the past 14 years." So, it did not come out of the blue! Every year, incremental growth in capacity charge was being added, and it was being paid to keep plants idle.

Media reports point to the fact that the country has some 151 power plants that are grid connected. On top of this there is import of power from India and power from solar. According to data (as of April 19, 2023), the maximum power generated on that date was 15,648 MW (megawatts). Currently daily demand is around 14,500 MW. But BPDB can manage a maximum of 13,500 MW power generation. Why the discrepancy? That comes from BPDB's inability to clear outstanding payments, as well as, failure to ensure adequate fuel supply. The net result of all this is two-fold. The capacity charges for keeping power plants idle goes up, and industrial output suffers due to a lack of adequate power. While things are somewhat better in urban centres like Dhaka, the rest of the country suffers many hours of power outage on a daily basis. One wonders what possessed policymakers to keep on adding power plants without ensuring uninterrupted fuel supply.

If one takes a look at a recent study done by the Center for Policy Dialogue (CPD) in June 2023, the situation becomes clearer.  It states that the reserve margin against demand may increase to 50 per cent in 2025. Now if the government ends up paying half of the national subsidies to the power sector, there won't be much left for anything else to happen in the economy. As per CPD analysis, "BDT 57,970 crore has been paid to IPPs as capacity charge in 5 years. In addition, BDT 41,309 crore has been paid to the BPDB-owned power plants as a fixed cost. It makes a total of BDT 99,297 crore." Existing gas supply is depleting alarmingly. Against a demand for 2,100 MMCFD (million cubic feet per day), the supply has dwindled to 1,200 MMCFD. The use of local coal remains off the shelf and foot-dragging continues on expediting natural gas exploration (both on-shore and off-shore). The bad decisions of a decade ago have caught up with Bangladesh and there is no good news on the horizon.

Energy experts agree that adding new power plants is a necessity. But what has not happened in Bangladesh is the retirement of older power plants that had outlived their active life and were no longer efficient. Perhaps the idea was to show (on paper) that power generating capacity of the country was doing exceedingly well. With enactment of the Speedy Power Supply Special Act, there was a race for continually setting up an unprecedented number of power plants. The time has surely come to retire fuel-inefficient power plants so as to help reduce the bleeding of finances.

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